Power Corp of Canada 2

On my other blog I am today writing Dividend Growth Calculations continue...

Sound bite for Twitter and StockTwits is: Stock is relatively cheap. It is best to buy good companies when they are cheap. See my spreadsheet at pow.htm.

I do not own this stock of Power Corp of Canada (TSX-POW, OTC-PWCDF). I started following this stock because it was on the Dividend Achievers, the Dividend Aristocrats lists and also on Mike Higgs' list. I would not buy it because I have shares in Power Financial, which this company controls.

The outstanding shares were increased by 1.238M shares in 2014 for stock options. The book value for these shares was $40M. This number of shares was worth $39.3M at the end of 2014. This number of shares is 0.16% of the outstanding shares. For most companies, stock options issued in one year is 0.50% or less of outstanding shares. For insider trading, there was $23.9M of insider selling and $23.9M of net insider selling. There was a minimal amount of insider buying. The insider selling is 0.16% of the market cap. This is rather on the high side.

The Desmarais Family Residuary Trust owns some 48.3M shares of this company and 10.56% of the outstanding shares. This company has also issued Participating Preferred Shares Participating which the Desmarais Family Residuary Trust also own 99.5% of. These Participating Preferred Shares have 10 votes each whereas the other shares are subordinate shares with one vote each. This gives the Desmarais Family effective control of this company.

The 5 year low, median and high median Price/Earnings per Share Ratios are 12.18, 13.79 and 15.28. The 10 year corresponding P/E Ratios are similar at 10.96, 13.79 and 15.16. The current P/E Ratio is 10.50 based on a stock price of $32.43 and 2015 EPS estimate of $3.09. This stock price test suggests that the stock price is relatively cheap.

I get a Graham Price of $40.72. The 10 year low, median and high median Price/Graham Price Ratios are 0.80, 0.94 and 1.09. The current P/GP Ratio is 0.80 based on a stock price of $32.43. This stock price test suggests that the stock price is relatively cheap. On an absolute basis a P/GP Ratio of less than 1.00 says a stock is cheap.

I get a 10 year Price/Book Value per Share Ratio of 1.65. The current P/B Ratio is 1.36, a value some 17% lower. The P/B Ratio of 1.36 is based on a stock price of $32.43 and BVPS of $23.85. This stock price test suggests that the stock price is relatively reasonable. For the stock to be considered cheap by this test, the current P/E Ratio would have to be 20% lower than the 10 year median ratio.

The 5 year median dividend yield is 4.14% and the current dividend yield at 3.84% is some 7.3% lower. What you want is to have the current dividend yield higher than the ones of the past, but it is only 7.3% higher, so not that much higher. This stock price test suggests that the stock price is relatively reasonable.

The historical average and historical median dividend yields are lower than the current dividend yields. The historical average and historical median dividend yields are 3.53% and 2.25%. These are 8.9% and 70% lower than the current dividend yield. The historical median dividend yield is probably the right measure. And, by this measure this stock price test suggests that the stock price is relatively cheap.

When I look at analysts' recommendations, I find Buy and Hold recommendations. Most of the recommendations are a Buy and the consensus recommendation is a Buy. The 12 month consensus stock price is $37.00. This implies a total return of 17.93% with 17.09% from capital gains and 3.84% from dividends.

Joseph Solitro in March 2015 in a Motley Fool report asks if you should now buy Power Corp. (Note that sometimes you have to exit and go back into a Motley Fool report to get the full report.) Solitro thinks that Power Corp is a long term investment opportunity. There is an interesting December 2014 article in the Globe & Mail talking about should you buy a parent company (like Power Corp) or one of its subsidiaries. This Business Financial Post report talks about the Desmarais Family selling Power Corp stock for estate purposes.

This is the second of two parts. The first part was posted on Tuesday, June 23, 2015 and is available here. The first part talks about the stock and the second part talks about the stock price.

Power Corporation of Canada is a diversified international management and holding company with interests in companies in the financial services, communications and other business sectors in North America, Europe and Asia. Some of it subsidiary companies include Power Financial, the Pargesa group and Gesca and Square Victoria Digital Properties. Its web site is here Power Corp.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.